Whether it's through stocks, bonds, ETFs, or other types of securities, all investors love seeing their portfolios score big returns. But for income investors, generating consistent cash flow from each of your liquid investments is your primary focus.
While cash flow can come from bond interest or interest from other types of investments, income investors hone in on dividends. A dividend is that coveted distribution of a company's earnings paid out to shareholders, and investors often view it by its dividend yield, a metric that measures the dividend as a percent of the current stock price. Many academic studies show that dividends account for significant portions of long-term returns, with dividend contributions exceeding one-third of total returns in many cases.
West Bancorp in Focus
Headquartered in West Des Moines, West Bancorp (WTBA - Free Report) is a Finance stock that has seen a price change of -31.17% so far this year. The holding company for West Bank is currently shelling out a dividend of $0.21 per share, with a dividend yield of 4.76%. This compares to the Financial - Savings and Loan industry's yield of 3.11% and the S&P 500's yield of 1.96%.
Taking a look at the company's dividend growth, its current annualized dividend of $0.84 is up 1.2% from last year. In the past five-year period, West Bancorp has increased its dividend 5 times on a year-over-year basis for an average annual increase of 7.03%. Future dividend growth will depend on earnings growth as well as payout ratio, which is the proportion of a company's annual earnings per share that it pays out as a dividend. Right now, West Bancorp's payout ratio is 46%, which means it paid out 46% of its trailing 12-month EPS as dividend.
Earnings growth looks solid for WTBA for this fiscal year. The Zacks Consensus Estimate for 2020 is $2.05 per share, which represents a year-over-year growth rate of 17.82%.
Investors like dividends for many reasons; they greatly improve stock investing profits, decrease overall portfolio risk, and carry tax advantages, among others. But, not every company offers a quarterly payout.
Big, established firms that have more secure profits are often seen as the best dividend options, but it's fairly uncommon to see high-growth businesses or tech start-ups offer their stockholders a dividend. During periods of rising interest rates, income investors must be mindful that high-yielding stocks tend to struggle. That said, they can take comfort from the fact that WTBA is not only an attractive dividend play, but is also a compelling investment opportunity with a Zacks Rank of #1 (Strong Buy).